Thoughts on Emerald Clinics as an IPO investment?

Dear All,

I have been reading through the EMD clinics prospectus which is now on OMBB and also on their website and I have noticed a few items:

Here is a summary for those who are unfamiliar with the prospectus:

1. It is raising $6-8M at $0.20 a share with a post-money market cap of $45-50M

2. The pre-raise share ownership of the company is as follows:

Stewart Washer - 21.3%
Mal Washer - (Stewart's father) - 14.7%
Mercator (Matt Callahan - Stewart's friend) - 14.7%
Craig Darby - (brother-in-law of Stewart) - 14.7%

Over 65% of the company owned by these four




3. The executive remuneration of the team is:

Biologica Ventures (owned by Stewart Washer) - $200,000
Alistair Vickery - $350,000 + $87,500 bonus STI and $100,000 on admission to ASX
John Tooke - $50,000
Matt Callahan - $50,000
Patty Washer - approx $250,000-$300,000 per year
2 x Medical Advisors - $50,000 each = $100,000
Michael Winlo - $350,000 + $87,500 bonus STI and $50,000 on admission to ASX

Also hourly rates to Matt Callahan, John Tooke, Patty Washer and doctors.

So to cover the exec salaries alone, they need to generate over $1.5M per annum

When we add PAC partners CR fees, it is closer to $2.5M in the first year

Note the "1 July 2019-present" figures quoted are for only approx. 5 months of the year so need to double them (and a bit more) to estimate the annual salaries.


4. There are a whole host of executive options, performance options and broker options which make up close to 15% of the total cap table too.

5. There is also a loss of $2.8M made in the last financial year as the company began its operations.

So in summary, Emerald Clinics needs to make back quite a lot of money to cover the cash already burnt. The further dilution with quite plentiful options does make this more challenging.

The natural history of all listed medial clinic groups in Canada had not been encouraging:

1. National Access Clinics (TSX:META) - MC $50M (significant revenues and real estate holdings with multiple clinics across Canada)
2. CB2 clinics (CSE:CBii) - MC $8M
3. Empower (CSE:CNBT) - MC $5M

All have been down 50-90% post-IPO and their MC seems to be reflective of what true investor sentiment is.

It would suggest, based on the early stage and pre-revenue status of EMD, the true MC of EMD should be around $5-10M maximum